Exhibit 99.3
Cenovus Energy Inc.
Interim Consolidated Financial Statements (unaudited)
For the Period Ended June 30, 2012
(Canadian Dollars)
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (unaudited)
For the period ended June 30,
($ millions, except per share amounts)
|
| Three Months Ended |
| Six Months Ended | ||||||
| Notes | 2012 |
| 2011 |
| 2012 |
| 2011 |
| |
|
|
|
|
|
|
|
|
|
| |
Revenues | 1 |
|
|
|
|
|
|
|
| |
Gross Sales |
| 4,279 |
| 4,085 |
| 8,965 |
| 7,716 |
| |
Less: Royalties |
| 65 |
| 76 |
| 187 |
| 207 |
| |
|
| 4,214 |
| 4,009 |
| 8,778 |
| 7,509 |
| |
Expenses | 1 |
|
|
|
|
|
|
|
| |
Purchased product |
| 2,443 |
| 2,268 |
| 5,032 |
| 4,211 |
| |
Transportation and blending |
| 431 |
| 321 |
| 925 |
| 679 |
| |
Operating |
| 369 |
| 310 |
| 783 |
| 680 |
| |
Production and mineral taxes |
| 9 |
| 10 |
| 19 |
| 18 |
| |
(Gain) loss on risk management | 19 | (285) |
| (272) |
| (378) |
| (18) |
| |
Depreciation, depletion and amortization |
| 379 |
| 288 |
| 779 |
| 594 |
| |
Exploration expense | 10 | 68 |
| - |
| 68 |
| - |
| |
General and administrative |
| 57 |
| 55 |
| 150 |
| 168 |
| |
Finance costs | 3 | 111 |
| 106 |
| 224 |
| 223 |
| |
Interest income | 4 | (27) |
| (31) |
| (56) |
| (63) |
| |
Foreign exchange (gain) loss, net | 5 | 25 |
| (6) |
| 9 |
| (29) |
| |
(Gain) loss on divestiture of assets |
| (1) |
| (3) |
| (1) |
| (3) |
| |
Other (income) loss, net |
| 1 |
| 1 |
| (4) |
| - |
| |
Earnings Before Income Tax |
| 634 |
| 962 |
| 1,228 |
| 1,049 |
| |
Income tax expense | 6 | 238 |
| 307 |
| 406 |
| 347 |
| |
Net Earnings |
| 396 |
| 655 |
| 822 |
| 702 |
| |
Other Comprehensive Income (Loss), Net of Tax |
|
|
|
|
|
|
|
|
| |
Foreign currency translation adjustment |
| 30 |
| (4) |
| 9 |
| (27) |
| |
Comprehensive Income |
| 426 |
| 651 |
| 831 |
| 675 |
| |
|
|
|
|
|
|
|
|
|
| |
Net Earnings per Common Share | 7 |
|
|
|
|
|
|
|
| |
Basic |
| $ 0.52 |
| $ 0.87 |
| $ 1.09 |
| $ 0.93 |
| |
Diluted |
| $ 0.52 |
| $ 0.86 |
| $ 1.08 |
| $ 0.93 |
| |
|
|
|
|
|
|
|
|
|
| |
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
CONSOLIDATED BALANCE SHEETS (unaudited)
As at
($ millions)
|
| Notes |
| June 30, 2012 |
| December 31, |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
| 409 |
| 495 |
Accounts receivable and accrued revenues |
|
|
| 1,348 |
| 1,405 |
Current portion of Partnership Contribution Receivable |
|
|
| 383 |
| 372 |
Inventories |
| 8 |
| 1,135 |
| 1,291 |
Risk management |
| 19 |
| 380 |
| 232 |
Assets held for sale |
| 9 |
| - |
| 116 |
Current Assets |
|
|
| 3,655 |
| 3,911 |
Exploration and Evaluation Assets |
| 1,10 |
| 1,164 |
| 880 |
Property, Plant and Equipment, net |
| 1,11 |
| 15,013 |
| 14,324 |
Partnership Contribution Receivable |
|
|
| 1,631 |
| 1,822 |
Risk Management |
| 19 |
| 93 |
| 52 |
Income Tax Receivable |
|
|
| 29 |
| 29 |
Other Assets |
|
|
| 53 |
| 44 |
Goodwill |
| 1 |
| 1,132 |
| 1,132 |
Total Assets |
|
|
| 22,770 |
| 22,194 |
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
| 2,287 |
| 2,579 |
Income tax payable |
|
|
| 180 |
| 329 |
Current portion of Partnership Contribution Payable |
|
|
| 384 |
| 372 |
Short-term borrowings |
| 12 |
| 209 |
| - |
Risk management |
| 19 |
| 23 |
| 54 |
Liabilities related to assets held for sale |
| 9 |
| - |
| 54 |
Current Liabilities |
|
|
| 3,083 |
| 3,388 |
Long-Term Debt |
| 13 |
| 3,536 |
| 3,527 |
Partnership Contribution Payable |
|
|
| 1,662 |
| 1,853 |
Risk Management |
| 19 |
| 1 |
| 14 |
Decommissioning Liabilities |
| 14 |
| 2,003 |
| 1,777 |
Other Liabilities |
|
|
| 113 |
| 128 |
Deferred Income Taxes |
|
|
| 2,401 |
| 2,101 |
Total Liabilities |
|
|
| 12,799 |
| 12,788 |
Shareholders’ Equity |
|
|
| 9,971 |
| 9,406 |
Total Liabilities and Shareholders’ Equity |
|
|
| 22,770 |
| 22,194 |
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
($ millions)
|
| Share |
| Paid in |
| Retained |
| AOCI* |
| Total |
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2010 |
| 3,716 |
| 4,083 |
| 525 |
| 71 |
| 8,395 |
Net earnings |
| - |
| - |
| 702 |
| - |
| 702 |
Other comprehensive income (loss) |
| - |
| - |
| - |
| (27) |
| (27) |
Total comprehensive income (loss) for the period |
| - |
| - |
| 702 |
| (27) |
| 675 |
Common shares issued under option plans |
| 52 |
| - |
| - |
| - |
| 52 |
Stock-based compensation expense |
| - |
| 11 |
| - |
| - |
| 11 |
Dividends on common shares |
| - |
| - |
| (302) |
| - |
| (302) |
Balance as at June 30, 2011 |
| 3,768 |
| 4,094 |
| 925 |
| 44 |
| 8,831 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2011 |
| 3,780 |
| 4,107 |
| 1,400 |
| 119 |
| 9,406 |
Net earnings |
| - |
| - |
| 822 |
| - |
| 822 |
Other comprehensive income (loss) |
| - |
| - |
| - |
| 9 |
| 9 |
Total comprehensive income (loss) for the period |
| - |
| - |
| 822 |
| 9 |
| 831 |
Common shares issued under option plans |
| 44 |
| - |
| - |
| - |
| 44 |
Stock-based compensation expense |
| - |
| 22 |
| - |
| - |
| 22 |
Dividends on common shares |
| - |
| - |
| (332) |
| - |
| (332) |
Balance as at June 30, 2012 |
| 3,824 |
| 4,129 |
| 1,890 |
| 128 |
| 9,971 |
|
|
|
|
|
|
|
|
|
|
|
* Accumulated Other Comprehensive Income.
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the period ended June 30,
($ millions)
|
| Three Months Ended |
| Six Months Ended | ||||||
| Notes | 2012 |
| 2011 |
| 2012 |
| 2011 |
| |
|
|
|
|
|
|
|
|
|
| |
Operating Activities |
|
|
|
|
|
|
|
|
| |
Net earnings |
| 396 |
| 655 |
| 822 |
| 702 |
| |
Depreciation, depletion and amortization |
| 379 |
| 288 |
| 779 |
| 594 |
| |
Exploration expense |
| 68 |
| - |
| 68 |
| - |
| |
Deferred income taxes | 6 | 204 |
| 294 |
| 298 |
| 293 |
| |
Unrealized (gain) loss on risk management | 19 | (169) |
| (309) |
| (233) |
| (41) |
| |
Unrealized foreign exchange (gain) loss | 5 | 9 |
| (26) |
| (22) |
| (62) |
| |
(Gain) loss on divestiture of assets |
| (1) |
| (3) |
| (1) |
| (3) |
| |
Unwinding of discount on decommissioning liabilities | 3,14 | 21 |
| 19 |
| 42 |
| 37 |
| |
Other |
| 18 |
| 21 |
| 76 |
| 112 |
| |
|
| 925 |
| 939 |
| 1,829 |
| 1,632 |
| |
Net change in other assets and liabilities |
| (20) |
| (16) |
| (52) |
| (45) |
| |
Net change in non-cash working capital |
| 63 |
| (154) |
| (144) |
| (187) |
| |
Cash From Operating Activities |
| 968 |
| 769 |
| 1,633 |
| 1,400 |
| |
|
|
|
|
|
|
|
|
|
| |
Investing Activities |
|
|
|
|
|
|
|
|
| |
Capital expenditures – exploration and evaluation assets | 10 | (76) |
| (77) |
| (347) |
| (302) |
| |
Capital expenditures – property, plant and equipment | 11 | (612) |
| (401) |
| (1,249) |
| (905) |
| |
Proceeds from divestiture of assets |
| (1) |
| 6 |
| 65 |
| 8 |
| |
Net change in investments and other |
| (13) |
| (12) |
| (15) |
| (22) |
| |
Net change in non-cash working capital |
| (86) |
| (108) |
| (74) |
| (55) |
| |
Cash (Used in) Investing Activities |
| (788) |
| (592) |
| (1,620) |
| (1,276) |
| |
|
|
|
|
|
|
|
|
|
| |
Net Cash Provided (Used) before Financing Activities |
| 180 |
| 177 |
| 13 |
| 124 |
| |
|
|
|
|
|
|
|
|
|
| |
Financing Activities |
|
|
|
|
|
|
|
|
| |
Net issuance (repayment) of short-term borrowings |
| (66) |
| (166) |
| 207 |
| 84 |
| |
Proceeds on issuance of common shares |
| 1 |
| 7 |
| 32 |
| 38 |
| |
Dividends paid on common shares | 7 | (166) |
| (151) |
| (332) |
| (302) |
| |
Other |
| 1 |
| - |
| 1 |
| - |
| |
Cash From (Used in) Financing Activities |
| (230) |
| (310) |
| (92) |
| (180) |
| |
|
|
|
|
|
|
|
|
|
| |
Foreign Exchange Gain (Loss) on Cash and Cash Equivalents Held in Foreign Currency |
| (1) |
| (1) |
| (7) |
| 1 |
| |
Increase (Decrease) in Cash and Cash Equivalents |
| (51) |
| (134) |
| (86) |
| (55) |
| |
Cash and Cash Equivalents, Beginning of Period |
| 460 |
| 379 |
| 495 |
| 300 |
| |
Cash and Cash Equivalents, End of Period |
| 409 |
| 245 |
| 409 |
| 245 |
| |
|
|
|
|
|
|
|
|
|
| |
See accompanying Notes to Consolidated Financial Statements (unaudited).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
1. DESCRIPTION OF BUSINESS AND SEGMENTED DISCLOSURES
Cenovus Energy Inc. and its subsidiaries (together “Cenovus” or the “Company”) are in the business of the development, production and marketing of crude oil, natural gas and natural gas liquids (“NGLs”) in Canada with refining operations in the United States (“U.S.”).
Cenovus began independent operations on December 1, 2009, as a result of the plan of arrangement (“Arrangement”) involving Encana Corporation (“Encana”) whereby Encana was split into two independent energy companies, one a natural gas company, Encana, and the other an oil company, Cenovus. In connection with the Arrangement, Encana common shareholders received one share in each of the new Encana and Cenovus in exchange for each Encana share held.
Cenovus was incorporated under the Canada Business Corporations Act and its shares are publicly traded on the Toronto (“TSX”) and New York (“NYSE”) stock exchanges. The executive and registered office is located at #4000, 421 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 4K9. Information on the Company’s basis of presentation for these financial statements is found in Note 2.
The Company’s reportable segments are as follows:
· Oil Sands, which consists of Cenovus’s producing bitumen assets at Foster Creek and Christina Lake, heavy oil assets at Pelican Lake, new resource play assets such as Narrows Lake, Grand Rapids and Telephone Lake, and the Athabasca natural gas assets. Certain of the Company’s operated oil sands properties, notably Foster Creek, Christina Lake and Narrows Lake, are jointly owned with ConocoPhillips, an unrelated U.S. public company.
· Conventional, which includes the development and production of conventional crude oil, natural gas and NGLs in Alberta and Saskatchewan, notably the carbon dioxide enhanced oil recovery project at Weyburn, and the Bakken and Lower Shaunavon crude oil properties.
· Refining and Marketing, which is focused on the refining of crude oil products into petroleum and chemical products at two refineries located in the U.S. The refineries are jointly owned with and operated by Phillips 66, an unrelated U.S. public company. This segment also markets Cenovus’s crude oil and natural gas, as well as third-party purchases and sales of product that provide operational flexibility for transportation commitments, product type, delivery points and customer diversification.
· Corporate and Eliminations, which primarily includes unrealized gains and losses recorded on derivative financial instruments, gains and losses on divestiture of assets, as well as other Cenovus-wide costs for general and administrative, and financing activities. As financial instruments are settled, the realized gains and losses are recorded in the operating segment to which the derivative instrument relates. Eliminations relate to sales and operating revenues and purchased product between segments recorded at transfer prices based on current market prices and to unrealized intersegment profits in inventory.
The tabular financial information which follows presents the segmented information first by segment, then by product and geographic location.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
A) Results of Operations – Segment and Operational Information (For the Three Months Ended June 30)
|
| Oil Sands |
| Conventional |
| Refining and Marketing |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 917 |
| 784 |
| 465 |
| 591 |
| 2,962 |
| 2,725 |
|
Less: Royalties |
| 26 |
| 24 |
| 39 |
| 52 |
| - |
| - |
|
|
| 891 |
| 760 |
| 426 |
| 539 |
| 2,962 |
| 2,725 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| - |
| - |
| - |
| - |
| 2,508 |
| 2,283 |
|
Transportation and blending |
| 395 |
| 285 |
| 36 |
| 36 |
| - |
| - |
|
Operating |
| 131 |
| 95 |
| 115 |
| 105 |
| 123 |
| 109 |
|
Production and mineral taxes |
| - |
| - |
| 9 |
| 10 |
| - |
| - |
|
(Gain) loss on risk management |
| (21) |
| 41 |
| (75) |
| (12) |
| (20) |
| 8 |
|
Operating Cash Flow |
| 386 |
| 339 |
| 341 |
| 400 |
| 351 |
| 325 |
|
Depreciation, depletion and amortization |
| 110 |
| 75 |
| 222 |
| 185 |
| 35 |
| 18 |
|
Exploration expense |
| - |
| - |
| 68 |
| - |
| - |
| - |
|
Segment Income (Loss) |
| 276 |
| 264 |
| 51 |
| 215 |
| 316 |
| 307 |
|
|
| Corporate and |
| Consolidated |
| ||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
Gross Sales |
| (65) |
| (15) |
| 4,279 |
| 4,085 |
|
Less: Royalties |
| - |
| - |
| 65 |
| 76 |
|
|
| (65) |
| (15) |
| 4,214 |
| 4,009 |
|
Expenses |
|
|
|
|
|
|
|
|
|
Purchased product |
| (65) |
| (15) |
| 2,443 |
| 2,268 |
|
Transportation and blending |
| - |
| - |
| 431 |
| 321 |
|
Operating |
| - |
| 1 |
| 369 |
| 310 |
|
Production and mineral taxes |
| - |
| - |
| 9 |
| 10 |
|
(Gain) loss on risk management |
| (169) |
| (309) |
| (285) |
| (272) |
|
|
| 169 |
| 308 |
| 1,247 |
| 1,372 |
|
Depreciation, depletion and amortization |
| 12 |
| 10 |
| 379 |
| 288 |
|
Exploration expense |
| - |
| - |
| 68 |
| - |
|
Segment Income (Loss) |
| 157 |
| 298 |
| 800 |
| 1,084 |
|
General and administrative |
| 57 |
| 55 |
| 57 |
| 55 |
|
Finance costs |
| 111 |
| 106 |
| 111 |
| 106 |
|
Interest income |
| (27) |
| (31) |
| (27) |
| (31) |
|
Foreign exchange (gain) loss, net |
| 25 |
| (6) |
| 25 |
| (6) |
|
(Gain) loss on divestiture of assets |
| (1) |
| (3) |
| (1) |
| (3) |
|
Other (income) loss, net |
| 1 |
| 1 |
| 1 |
| 1 |
|
|
| 166 |
| 122 |
| 166 |
| 122 |
|
Earnings Before Income Tax |
|
|
|
|
| 634 |
| 962 |
|
Income tax expense |
|
|
|
|
| 238 |
| 307 |
|
Net Earnings |
|
|
|
|
| 396 |
| 655 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
B) Financial Results by Upstream Product (For the Three Months Ended June 30)
|
| Crude Oil and NGLs |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 909 |
| 766 |
| 365 |
| 381 |
| 1,274 |
| 1,147 |
|
Less: Royalties |
| 26 |
| 25 |
| 38 |
| 49 |
| 64 |
| 74 |
|
|
| 883 |
| 741 |
| 327 |
| 332 |
| 1,210 |
| 1,073 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| 395 |
| 284 |
| 31 |
| 28 |
| 426 |
| 312 |
|
Operating |
| 125 |
| 91 |
| 67 |
| 51 |
| 192 |
| 142 |
|
Production and mineral taxes |
| – |
| - |
| 8 |
| 7 |
| 8 |
| 7 |
|
(Gain) loss on risk management |
| (15) |
| 45 |
| (7) |
| 28 |
| (22) |
| 73 |
|
Operating Cash Flow |
| 378 |
| 321 |
| 228 |
| 218 |
| 606 |
| 539 |
|
|
| Natural Gas |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 7 |
| 16 |
| 99 |
| 208 |
| 106 |
| 224 |
|
Less: Royalties |
| - |
| (1) |
| 1 |
| 3 |
| 1 |
| 2 |
|
|
| 7 |
| 17 |
| 98 |
| 205 |
| 105 |
| 222 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| - |
| 1 |
| 5 |
| 8 |
| 5 |
| 9 |
|
Operating |
| 4 |
| 4 |
| 48 |
| 53 |
| 52 |
| 57 |
|
Production and mineral taxes |
| - |
| - |
| 1 |
| 3 |
| 1 |
| 3 |
|
(Gain) loss on risk management |
| (6) |
| (4) |
| (68) |
| (40) |
| (74) |
| (44) |
|
Operating Cash Flow |
| 9 |
| 16 |
| 112 |
| 181 |
| 121 |
| 197 |
|
|
| Other |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 1 |
| 2 |
| 1 |
| 2 |
| 2 |
| 4 |
|
Less: Royalties |
| - |
| - |
| - |
| - |
| - |
| - |
|
|
| 1 |
| 2 |
| 1 |
| 2 |
| 2 |
| 4 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| - |
| - |
| - |
| - |
| - |
| - |
|
Operating |
| 2 |
| - |
| - |
| 1 |
| 2 |
| 1 |
|
Production and mineral taxes |
| - |
| - |
| - |
| - |
| - |
| - |
|
(Gain) loss on risk management |
| - |
| - |
| - |
| - |
| - |
| - |
|
Operating Cash Flow |
| (1) |
| 2 |
| 1 |
| 1 |
| - |
| 3 |
|
|
| Total |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 917 |
| 784 |
| 465 |
| 591 |
| 1,382 |
| 1,375 |
|
Less: Royalties |
| 26 |
| 24 |
| 39 |
| 52 |
| 65 |
| 76 |
|
|
| 891 |
| 760 |
| 426 |
| 539 |
| 1,317 |
| 1,299 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| 395 |
| 285 |
| 36 |
| 36 |
| 431 |
| 321 |
|
Operating |
| 131 |
| 95 |
| 115 |
| 105 |
| 246 |
| 200 |
|
Production and mineral taxes |
| - |
| - |
| 9 |
| 10 |
| 9 |
| 10 |
|
(Gain) loss on risk management |
| (21) |
| 41 |
| (75) |
| (12) |
| (96) |
| 29 |
|
Operating Cash Flow |
| 386 |
| 339 |
| 341 |
| 400 |
| 727 |
| 739 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
C) Geographic Information (For the Three Months Ended June 30)
|
| Canada |
| United States |
| Consolidated |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 1,809 |
| 1,808 |
| 2,470 |
| 2,277 |
| 4,279 |
| 4,085 |
|
Less: Royalties |
| 65 |
| 76 |
| - |
| - |
| 65 |
| 76 |
|
|
| 1,744 |
| 1,732 |
| 2,470 |
| 2,277 |
| 4,214 |
| 4,009 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| 421 |
| 425 |
| 2,022 |
| 1,843 |
| 2,443 |
| 2,268 |
|
Transportation and blending |
| 431 |
| 321 |
| - |
| - |
| 431 |
| 321 |
|
Operating |
| 251 |
| 206 |
| 118 |
| 104 |
| 369 |
| 310 |
|
Production and mineral taxes |
| 9 |
| 10 |
| - |
| - |
| 9 |
| 10 |
|
(Gain) loss on risk management |
| (263) |
| (282) |
| (22) |
| 10 |
| (285) |
| (272) |
|
|
| 895 |
| 1,052 |
| 352 |
| 320 |
| 1,247 |
| 1,372 |
|
Depreciation, depletion and amortization |
| 344 |
| 270 |
| 35 |
| 18 |
| 379 |
| 288 |
|
Exploration expense |
| 68 |
| - |
| - |
| - |
| 68 |
| - |
|
Segment Income (Loss) |
| 483 |
| 782 |
| 317 |
| 302 |
| 800 |
| 1,084 |
|
The Oil Sands and Conventional segments operate in Canada. Both of Cenovus’s refining facilities are located and carry on business in the U.S. The marketing of Cenovus’s crude oil and natural gas produced in Canada, as well as the third party purchases and sales of product, is undertaken in Canada. Physical product sales that settle in the U.S. are considered to be export sales undertaken by a Canadian business. The Corporate and Eliminations segment is attributed to Canada with the exception of the unrealized risk management gains and losses which have been attributed to the country in which the transacting entity resides.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
D) Results of Operations – Segment and Operational Information (For the Six Months Ended June 30)
|
| Oil Sands |
| Conventional |
| Refining and Marketing | |||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 2,019 |
| 1,586 |
| 1,057 |
| 1,164 |
| 5,954 |
| 5,007 |
|
Less: Royalties |
| 92 |
| 108 |
| 95 |
| 99 |
| - |
| - |
|
|
| 1,927 |
| 1,478 |
| 962 |
| 1,065 |
| 5,954 |
| 5,007 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| - |
| - |
| - |
| - |
| 5,097 |
| 4,252 |
|
Transportation and blending |
| 845 |
| 606 |
| 80 |
| 73 |
| - |
| - |
|
Operating |
| 282 |
| 213 |
| 249 |
| 230 |
| 253 |
| 237 |
|
Production and mineral taxes |
| - |
| - |
| 19 |
| 18 |
| - |
| - |
|
(Gain) loss on risk management |
| (7) |
| 61 |
| (124) |
| (51) |
| (14) |
| 13 |
|
Operating Cash Flow |
| 807 |
| 598 |
| 738 |
| 795 |
| 618 |
| 505 |
|
Depreciation, depletion and amortization |
| 225 |
| 161 |
| 458 |
| 380 |
| 73 |
| 34 |
|
Exploration expense |
| - |
| - |
| 68 |
| - |
| - |
| - |
|
Segment Income (Loss) |
| 582 |
| 437 |
| 212 |
| 415 |
| 545 |
| 471 |
|
|
|
|
|
|
| Corporate and |
| Consolidated | |||||
|
|
|
|
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
|
|
|
| (65) |
| (41) |
| 8,965 |
| 7,716 |
|
Less: Royalties |
|
|
|
|
| - |
| - |
| 187 |
| 207 |
|
|
|
|
|
|
| (65) |
| (41) |
| 8,778 |
| 7,509 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
|
|
|
|
| (65) |
| (41) |
| 5,032 |
| 4,211 |
|
Transportation and blending |
|
|
|
|
| - |
| - |
| 925 |
| 679 |
|
Operating |
|
|
|
|
| (1) |
| - |
| 783 |
| 680 |
|
Production and mineral taxes |
|
|
|
|
| - |
| - |
| 19 |
| 18 |
|
(Gain) loss on risk management |
|
|
|
|
| (233) |
| (41) |
| (378) |
| (18) |
|
|
|
|
|
|
| 234 |
| 41 |
| 2,397 |
| 1,939 |
|
Depreciation, depletion and amortization |
|
|
|
|
| 23 |
| 19 |
| 779 |
| 594 |
|
Exploration expense |
|
|
|
|
| - |
| - |
| 68 |
| - |
|
Segment Income (Loss) |
|
|
|
|
| 211 |
| 22 |
| 1,550 |
| 1,345 |
|
General and administrative |
|
|
|
|
| 150 |
| 168 |
| 150 |
| 168 |
|
Finance costs |
|
|
|
|
| 224 |
| 223 |
| 224 |
| 223 |
|
Interest income |
|
|
|
|
| (56) |
| (63) |
| (56) |
| (63) |
|
Foreign exchange (gain) loss, net |
|
|
|
|
| 9 |
| (29) |
| 9 |
| (29) |
|
(Gain) loss on divestiture of assets |
|
|
|
|
| (1) |
| (3) |
| (1) |
| (3) |
|
Other (income) loss, net |
|
|
|
|
| (4) |
| - |
| (4) |
| - |
|
|
|
|
|
|
| 322 |
| 296 |
| 322 |
| 296 |
|
Earnings Before Income Tax |
|
|
|
|
|
|
|
|
| 1,228 |
| 1,049 |
|
Income tax expense |
|
|
|
|
|
|
|
|
| 406 |
| 347 |
|
Net Earnings |
|
|
|
|
|
|
|
|
| 822 |
| 702 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
E) Financial Results by Upstream Product (For the Six Months Ended June 30)
|
| Crude Oil and NGLs |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 1,996 |
| 1,550 |
| 819 |
| 737 |
| 2,815 |
| 2,287 |
|
Less: Royalties |
| 91 |
| 107 |
| 92 |
| 93 |
| 183 |
| 200 |
|
|
| 1,905 |
| 1,443 |
| 727 |
| 644 |
| 2,632 |
| 2,087 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| 844 |
| 605 |
| 69 |
| 55 |
| 913 |
| 660 |
|
Operating |
| 263 |
| 198 |
| 146 |
| 114 |
| 409 |
| 312 |
|
Production and mineral taxes |
| - |
| - |
| 17 |
| 12 |
| 17 |
| 12 |
|
(Gain) loss on risk management |
| 3 |
| 69 |
| - |
| 37 |
| 3 |
| 106 |
|
Operating Cash Flow |
| 795 |
| 571 |
| 495 |
| 426 |
| 1,290 |
| 997 |
|
|
| Natural Gas |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 18 |
| 30 |
| 234 |
| 422 |
| 252 |
| 452 |
|
Less: Royalties |
| 1 |
| 1 |
| 3 |
| 6 |
| 4 |
| 7 |
|
|
| 17 |
| 29 |
| 231 |
| 416 |
| 248 |
| 445 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| 1 |
| 1 |
| 11 |
| 18 |
| 12 |
| 19 |
|
Operating |
| 13 |
| 13 |
| 102 |
| 114 |
| 115 |
| 127 |
|
Production and mineral taxes |
| - |
| - |
| 2 |
| 6 |
| 2 |
| 6 |
|
(Gain) loss on risk management |
| (10) |
| (8) |
| (124) |
| (88) |
| (134) |
| (96) |
|
Operating Cash Flow |
| 13 |
| 23 |
| 240 |
| 366 |
| 253 |
| 389 |
|
|
| Other |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 5 |
| 6 |
| 4 |
| 5 |
| 9 |
| 11 |
|
Less: Royalties |
| - |
| - |
| - |
| - |
| - |
| - |
|
|
| 5 |
| 6 |
| 4 |
| 5 |
| 9 |
| 11 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| - |
| - |
| - |
| - |
| - |
| - |
|
Operating |
| 6 |
| 2 |
| 1 |
| 2 |
| 7 |
| 4 |
|
Production and mineral taxes |
| - |
| - |
| - |
| - |
| - |
| - |
|
(Gain) loss on risk management |
| - |
| - |
| - |
| - |
| - |
| - |
|
Operating Cash Flow |
| (1) |
| 4 |
| 3 |
| 3 |
| 2 |
| 7 |
|
|
| Total |
| ||||||||||
|
| Oil Sands |
| Conventional |
| Total |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 2,019 |
| 1,586 |
| 1,057 |
| 1,164 |
| 3,076 |
| 2,750 |
|
Less: Royalties |
| 92 |
| 108 |
| 95 |
| 99 |
| 187 |
| 207 |
|
|
| 1,927 |
| 1,478 |
| 962 |
| 1,065 |
| 2,889 |
| 2,543 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and blending |
| 845 |
| 606 |
| 80 |
| 73 |
| 925 |
| 679 |
|
Operating |
| 282 |
| 213 |
| 249 |
| 230 |
| 531 |
| 443 |
|
Production and mineral taxes |
| - |
| - |
| 19 |
| 18 |
| 19 |
| 18 |
|
(Gain) loss on risk management |
| (7) |
| 61 |
| (124) |
| (51) |
| (131) |
| 10 |
|
Operating Cash Flow |
| 807 |
| 598 |
| 738 |
| 795 |
| 1,545 |
| 1,393 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
F) Geographic Information (For the Six Months Ended June 30)
|
| Canada |
| United States |
| Consolidated |
| ||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
| 4,053 |
| 3,644 |
| 4,912 |
| 4,072 |
| 8,965 |
| 7,716 |
|
Less: Royalties |
| 187 |
| 207 |
| - |
| - |
| 187 |
| 207 |
|
|
| 3,866 |
| 3,437 |
| 4,912 |
| 4,072 |
| 8,778 |
| 7,509 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| 964 |
| 878 |
| 4,068 |
| 3,333 |
| 5,032 |
| 4,211 |
|
Transportation and blending |
| 925 |
| 679 |
| - |
| - |
| 925 |
| 679 |
|
Operating |
| 541 |
| 456 |
| 242 |
| 224 |
| 783 |
| 680 |
|
Production and mineral taxes |
| 19 |
| 18 |
| - |
| - |
| 19 |
| 18 |
|
(Gain) loss on risk management |
| (358) |
| (30) |
| (20) |
| 12 |
| (378) |
| (18) |
|
|
| 1,775 |
| 1,436 |
| 622 |
| 503 |
| 2,397 |
| 1,939 |
|
Depreciation, depletion and amortization |
| 706 |
| 560 |
| 73 |
| 34 |
| 779 |
| 594 |
|
Exploration expense |
| 68 |
| - |
| - |
| - |
| 68 |
| - |
|
Segment Income (Loss) |
| 1,001 |
| 876 |
| 549 |
| 469 |
| 1,550 |
| 1,345 |
|
The Oil Sands and Conventional segments operate in Canada. Both of Cenovus’s refining facilities are located and carry on business in the U.S. The marketing of Cenovus’s crude oil and natural gas produced in Canada, as well as the third party purchases and sales of product, is undertaken in Canada. Physical product sales that settle in the U.S. are considered to be export sales undertaken by a Canadian business. The Corporate and Eliminations segment is attributed to Canada with the exception of the unrealized risk management gains and losses which have been attributed to the country in which the transacting entity resides.
G) Exploration and Evaluation Assets, Property, Plant and Equipment, Goodwill and Total Assets
By Segment
|
| Exploration and Evaluation Assets |
| Property, Plant and Equipment |
| ||||
As at |
| June 30, 2012 |
| December 31, 2011 |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Oil Sands |
| 1,062 |
| 741 |
| 6,803 |
| 6,224 |
|
Conventional |
| 102 |
| 139 |
| 4,759 |
| 4,668 |
|
Refining and Marketing |
| - |
| - |
| 3,154 |
| 3,200 |
|
Corporate and Eliminations |
| - |
| - |
| 297 |
| 232 |
|
Consolidated |
| 1,164 |
| 880 |
| 15,013 |
| 14,324 |
|
|
| Goodwill |
| Total Assets |
| ||||
As at |
| June 30, 2012 |
| December 31, 2011 |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Oil Sands |
| 739 |
| 739 |
| 11,122 |
| 10,524 |
|
Conventional |
| 393 |
| 393 |
| 5,460 |
| 5,566 |
|
Refining and Marketing |
| - |
| - |
| 4,859 |
| 4,927 |
|
Corporate and Eliminations |
| - |
| - |
| 1,329 |
| 1,177 |
|
Consolidated |
| 1,132 |
| 1,132 |
| 22,770 |
| 22,194 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
By Geographic Region
|
| Exploration and Evaluation Assets |
| Property, Plant and Equipment |
| ||||
As at |
| June 30, 2012 |
| December 31, 2011 |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Canada |
| 1,164 |
| 880 |
| 11,859 |
| 11,124 |
|
United States |
| - |
| - |
| 3,154 |
| 3,200 |
|
Consolidated |
| 1,164 |
| 880 |
| 15,013 |
| 14,324 |
|
|
| Goodwill |
| Total Assets |
| ||||
As at |
| June 30, 2012 |
| December 31, 2011 |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Canada |
| 1,132 |
| 1,132 |
| 18,203 |
| 17,536 |
|
United States |
| - |
| - |
| 4,567 |
| 4,658 |
|
Consolidated |
| 1,132 |
| 1,132 |
| 22,770 |
| 22,194 |
|
H) Capital Expenditures
|
| Three Months Ended |
| Six Months Ended | |||||
For the period ended June 30, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
|
|
|
Oil Sands |
| 454 |
| 240 |
| 1,090 |
| 644 |
|
Conventional |
| 129 |
| 89 |
| 360 |
| 265 |
|
Refining and Marketing |
| 24 |
| 117 |
| 22 |
| 219 |
|
Corporate |
| 53 |
| 30 |
| 88 |
| 61 |
|
|
| 660 |
| 476 |
| 1,560 |
| 1,189 |
|
Acquisition Capital |
|
|
|
|
|
|
|
|
|
Oil Sands |
| - |
| - |
| - |
| 4 |
|
Conventional |
| 28 |
| 2 |
| 36 |
| 14 |
|
Corporate |
| - |
| - |
| - |
| 3 |
|
Total |
| 688 |
| 478 |
| 1,596 |
| 1,210 |
|
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
In these interim Consolidated Financial Statements, unless otherwise indicated, all dollars are expressed in Canadian dollars. All references to C$ or $ are to Canadian dollars and references to US$ are to U.S. dollars.
These interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements including International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”) and have been prepared following the same accounting policies and method of computation as the annual Consolidated Financial Statements for the year ended December 31, 2011. The disclosures provided below are incremental to those included with the annual Consolidated Financial Statements. Certain information and disclosures normally included in the notes to the annual Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, these interim Consolidated Financial Statements should be read in conjunction with the annual Consolidated Financial Statements for the year ended December 31, 2011, which have been prepared in accordance with IFRS as issued by the IASB.
These interim Consolidated Financial Statements of Cenovus were approved by the Audit Committee on July 24, 2012.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
3. FINANCE COSTS
|
| Three Months Ended |
| Six Months Ended | |||||
For the period ended June 30, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Interest Expense – Short-Term Borrowings and Long-Term Debt |
| 54 |
| 52 |
| 107 |
| 106 |
|
Interest Expense – Partnership Contribution Payable |
| 30 |
| 34 |
| 62 |
| 70 |
|
Unwinding of Discount on Decommissioning Liabilities |
| 21 |
| 19 |
| 42 |
| 37 |
|
Other |
| 6 |
| 1 |
| 13 |
| 10 |
|
|
| 111 |
| 106 |
| 224 |
| 223 |
|
4. INTEREST INCOME
|
| Three Months Ended |
| Six Months Ended | |||||
For the period ended June 30, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Interest Income – Partnership Contribution Receivable |
| (26) |
| (30) |
| (54) |
| (61) |
|
Other |
| (1) |
| (1) |
| (2) |
| (2) |
|
|
| (27) |
| (31) |
| (56) |
| (63) |
|
5. FOREIGN EXCHANGE (GAIN) LOSS, NET
|
| Three Months Ended |
| Six Months Ended | |||||
For the period ended June 30, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized Foreign Exchange (Gain) Loss on translation of: |
|
|
|
|
|
|
|
|
|
U.S. dollar debt issued from Canada |
| 69 |
| (26) |
| 7 |
| (106) |
|
U.S. dollar Partnership Contribution Receivable issued from Canada |
| (55) |
| - |
| (31) |
| 41 |
|
Other |
| (5) |
| - |
| 2 |
| 3 |
|
Unrealized Foreign Exchange (Gain) Loss |
| 9 |
| (26) |
| (22) |
| (62) |
|
Realized Foreign Exchange (Gain) Loss |
| 16 |
| 20 |
| 31 |
| 33 |
|
|
| 25 |
| (6) |
| 9 |
| (29) |
|
6. INCOME TAXES
The provision for income taxes is as follows:
|
| Three Months Ended |
| Six Months Ended | |||||
For the period ended June 30, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
Current Tax |
|
|
|
|
|
|
|
|
|
Canada |
| 21 |
| 12 |
| 83 |
| 53 |
|
United States |
| 13 |
| 1 |
| 25 |
| 1 |
|
Total Current Tax |
| 34 |
| 13 |
| 108 |
| 54 |
|
Deferred Tax |
| 204 |
| 294 |
| 298 |
| 293 |
|
|
| 238 |
| 307 |
| 406 |
| 347 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
7. PER SHARE AMOUNTS
A) Net Earnings per Share
|
| June 30, 2012 |
| June 30, 2011 | |||||||||
For the three months ended |
| Net Earnings |
| Shares |
| Earnings |
| Net Earnings |
| Shares |
| Earnings | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share – basic |
| 396 |
| 755.7 |
| $0.52 |
| 655 |
| 754.1 |
| $0.87 |
|
Dilutive effect of Cenovus TSARs |
| - |
| 2.2 |
|
|
| - |
| 3.9 |
|
|
|
Net earnings per share – diluted |
| 396 |
| 757.9 |
| $0.52 |
| 655 |
| 758.0 |
| $0.86 |
|
|
| June 30, 2012 |
| June 30, 2011 | |||||||||
For the six months ended |
| Net Earnings |
| Shares |
| Earnings |
| Net Earnings |
| Shares |
| Earnings | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share – basic |
| 822 |
| 755.4 |
| $1.09 |
| 702 |
| 753.6 |
| $0.93 |
|
Dilutive effect of Cenovus TSARs |
| - |
| 3.4 |
|
|
| - |
| 4.4 |
|
|
|
Net earnings per share – diluted |
| 822 |
| 758.8 |
| $1.08 |
| 702 |
| 758.0 |
| $0.93 |
|
B) Dividends per Share
The Company paid dividends of $332 million, $0.44 per share, for the six months ended June 30, 2012 (June 30, 2011 – $302 million, $0.40 per share).
The Cenovus Board of Directors declared a third quarter dividend of $0.22 per share, payable on September 28, 2012, to common shareholders of record as of September 14, 2012.
8. INVENTORIES
As at |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
Product |
|
|
|
|
|
Refining and Marketing |
| 990 |
| 1,079 |
|
Oil Sands |
| 113 |
| 186 |
|
Conventional |
| 1 |
| 1 |
|
Parts and Supplies |
| 31 |
| 25 |
|
|
| 1,135 |
| 1,291 |
|
9. ASSETS AND LIABILITIES HELD FOR SALE
Assets and liabilities classified as held for sale consisted of the following:
As at |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
Assets Held for Sale |
|
|
|
|
|
Property, plant and equipment |
| - |
| 116 |
|
|
|
|
|
|
|
Liabilities Related to Assets Held for Sale |
|
|
|
|
|
Decommissioning liabilities |
| - |
| 54 |
|
Non-Core Natural Gas Assets
In January 2012, the Company completed the sale of non-core natural gas assets located in Northern Alberta. A loss of $2 million was recorded on the sale. These assets and the related liabilities were reported in the Conventional segment.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
10. EXPLORATION AND EVALUATION ASSETS
|
| E&E |
|
|
|
|
|
COST |
|
|
|
As at December 31, 2010 |
| 713 |
|
Additions |
| 527 |
|
Transfers to property, plant and equipment (Note 11) |
| (356) |
|
Divestitures |
| (3) |
|
Change in decommissioning liabilities |
| (1) |
|
As at December 31, 2011 |
| 880 |
|
Additions |
| 347 |
|
Transfers to property, plant and equipment (Note 11) |
| - |
|
Exploration expense |
| (68) |
|
Divestitures |
| - |
|
Change in decommissioning liabilities |
| 5 |
|
As at June 30, 2012 |
| 1,164 |
|
Exploration and evaluation assets (“E&E assets”) consist of the Company’s evaluation projects which are pending the determination of technical feasibility and commercial viability. All of the Company’s E&E assets are located within Canada.
Additions to E&E assets for the six months ended June 30, 2012 include $17 million of internal costs directly related to the evaluation of these projects (year ended December 31, 2011 – $15 million).
For the six months ended June 30, 2012, no E&E assets were transferred to property, plant and equipment – development and production assets following the determination of technical feasibility and commercial viability of the projects in question (year ended December 31, 2011 – $356 million).
Impairment
The impairment of E&E assets and any subsequent reversal of such impairment losses are recognized in exploration expense in the Consolidated Statement of Earnings and Comprehensive Income. During the six months ended June 30, 2012, $68 million of previously capitalized E&E costs related primarily to the Roncott assets within the Conventional segment were deemed not to be technically feasible and commercially viable and were recognized as exploration expense. There were no amounts expensed for the six months ended June 30, 2011.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
11. PROPERTY, PLANT AND EQUIPMENT, NET
|
| Upstream Assets |
|
|
|
|
|
|
| ||
|
| Development |
| Other |
| Refining |
| Other 1 |
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
COST |
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010 |
| 21,720 |
| 153 |
| 2,950 |
| 450 |
| 25,273 |
|
Additions |
| 1,704 |
| 41 |
| 391 |
| 131 |
| 2,267 |
|
Transfers from E&E assets (Note 10) |
| 356 |
| - |
| - |
| - |
| 356 |
|
Transfers and reclassifications |
| (326) |
| - |
| (5) |
| (2) |
| (333 | ) |
Change in decommissioning liabilities |
| 403 |
| - |
| 10 |
| 1 |
| 414 |
|
Exchange rate movements |
| 1 |
| - |
| 79 |
| - |
| 80 |
|
Divestitures |
| - |
| - |
| - |
| (4) |
| (4 | ) |
As at December 31, 2011 |
| 23,858 |
| 194 |
| 3,425 |
| 576 |
| 28,053 |
|
Additions |
| 1,119 |
| 20 |
| 22 |
| 88 |
| 1,249 |
|
Transfers from E&E assets (Note 10) |
| - |
| - |
| - |
| - |
| - |
|
Transfers and reclassifications |
| - |
| - |
| (44) |
| - |
| (44 | ) |
Change in decommissioning liabilities |
| 214 |
| - |
| - |
| - |
| 214 |
|
Exchange rate movements |
| 1 |
| - |
| 6 |
| - |
| 7 |
|
Divestitures |
| - |
| - |
| - |
| - |
| - |
|
As at June 30, 2012 |
| 25,192 |
| 214 |
| 3,409 |
| 664 |
| 29,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION, DEPLETION AND IMPAIRMENT |
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010 |
| 12,121 |
| 124 |
| 97 |
| 304 |
| 12,646 |
|
Depreciation and depletion expense |
| 1,108 |
| 15 |
| 85 |
| 40 |
| 1,248 |
|
Transfers and reclassifications |
| (211) |
| - |
| (5) |
| - |
| (216 | ) |
Impairment losses |
| 2 |
| - |
| 45 |
| - |
| 47 |
|
Exchange rate movements |
| 1 |
| - |
| 3 |
| - |
| 4 |
|
As at December 31, 2011 |
| 13,021 |
| 139 |
| 225 |
| 344 |
| 13,729 |
|
Depreciation and depletion expense |
| 675 |
| 8 |
| 73 |
| 23 |
| 779 |
|
Transfers and reclassifications |
| - |
| - |
| (44) |
| - |
| (44 | ) |
Impairment losses |
| - |
| - |
| - |
| - |
| - |
|
Exchange rate movements |
| 1 |
| - |
| 1 |
| - |
| 2 |
|
Divestitures |
| - |
| - |
| - |
| - |
| - |
|
As at June 30, 2012 |
| 13,697 |
| 147 |
| 255 |
| 367 |
| 14,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CARRYING VALUE |
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010 |
| 9,599 |
| 29 |
| 2,853 |
| 146 |
| 12,627 |
|
As at December 31, 2011 |
| 10,837 |
| 55 |
| 3,200 |
| 232 |
| 14,324 |
|
As at June 30, 2012 |
| 11,495 |
| 67 |
| 3,154 |
| 297 |
| 15,013 |
|
1. Includes office furniture, fixtures, leasehold improvements, information technology and aircraft.
Additions to development and production assets include internal costs directly related to the development and construction of oil and gas properties of $74 million for the six months ended June 30, 2012 (December 31, 2011 – $125 million). All of the Company’s development and production assets are located within Canada. Costs classified as general and administrative expenses have not been capitalized as part of capital expenditures. No borrowing costs have been capitalized during the six months ended June 30, 2012 or for the year ended December 31, 2011.
Property, plant and equipment include the following amounts in respect of assets not available for use which are not subject to depreciation until put into use:
As at |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
|
|
Development and production |
| 54 |
| 52 |
|
Refining equipment |
| 75 |
| 125 |
|
Other |
| 169 |
| 112 |
|
|
| 298 |
| 289 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Impairment
The impairment of property, plant and equipment and any subsequent reversal of such impairment losses are recognized in depreciation, depletion and amortization in the Consolidated Statement of Earnings and Comprehensive Income. There were no impairment losses recorded for the six months ended June 30, 2012 or 2011.
12. SHORT-TERM BORROWINGS
The Company had short-term borrowings in the form of commercial paper in the amount of $209 million as at June 30, 2012 (December 31, 2011 – $nil). The Company reserves capacity under its committed credit facility for amounts of commercial paper outstanding.
13. LONG-TERM DEBT
As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
Canadian Dollar Denominated Debt |
|
|
|
|
|
|
Revolving term debt 1 |
| – |
|
| – |
|
U.S. Dollar Denominated Debt |
|
|
|
|
|
|
Revolving term debt 1 |
| – |
|
| – |
|
Unsecured notes (US$3,500) |
| 3,567 |
|
| 3,559 |
|
|
| 3,567 |
|
| 3,559 |
|
Total Debt Principal |
| 3,567 |
|
| 3,559 |
|
|
|
|
|
|
|
|
Debt Discounts and Transaction Costs |
| (31 | ) |
| (32 | ) |
Current Portion of Long-Term Debt |
| – |
|
| – |
|
|
| 3,536 |
|
| 3,527 |
|
1. Revolving term debt may include bankers’ acceptances, LIBOR loans, prime rate loans and U.S. base rate loans.
As at June 30, 2012, the Company is in compliance with all of the terms of its debt agreements.
On May 24, 2012, Cenovus filed a Canadian base shelf prospectus for unsecured medium term notes in the amount of $1,500 million. The Canadian shelf prospectus allows for the issuance of medium term notes in Canadian dollars or other foreign currencies from time to time in one or more offerings. Terms of the notes, including, but not limited to, interest at either fixed or floating rates and expiry dates will be determined at the date of issue. As at June 30, 2012, no medium term notes have been issued under this Canadian prospectus. The shelf prospectus expires in June 2014.
On June 6, 2012, Cenovus filed a U.S. base shelf prospectus for unsecured notes in the amount of US$2,000 million. The U.S. shelf prospectus allows for the issuance of debt securities in U.S. dollars or other foreign currencies from time to time in one or more offerings. Terms of the notes, including, but not limited to, interest at either fixed or floating rates and expiry dates will be determined at the date of issue. As at June 30, 2012, no notes have been issued under this U.S. prospectus. The shelf prospectus expires in July 2014.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
14. DECOMMISSIONING LIABILITIES
The decommissioning provision represents the present value of the future costs associated with the retirement of upstream oil and gas assets and refining facilities. The aggregate carrying amount of the obligation is as follows:
As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
Decommissioning Liabilities, Beginning of Year |
| 1,777 |
|
| 1,399 |
|
Liabilities incurred |
| 36 |
|
| 49 |
|
Liabilities settled |
| (38 | ) |
| (56 | ) |
Liabilities divested |
| - |
|
| - |
|
Transfers and reclassifications |
| 3 |
|
| (55 | ) |
Change in estimated future cash flows |
| 7 |
|
| 146 |
|
Change in discount rate |
| 176 |
|
| 218 |
|
Unwinding of discount on decommissioning liabilities |
| 42 |
|
| 75 |
|
Foreign currency translation |
| - |
|
| 1 |
|
Decommissioning Liabilities, End of Period |
| 2,003 |
|
| 1,777 |
|
The undiscounted amount of estimated cash flows required to settle the obligation has been discounted using a credit-adjusted risk-free rate of 4.4 percent as at June 30, 2012 (December 31, 2011 – 4.8 percent).
15. SHARE CAPITAL
Authorized
Cenovus is authorized to issue an unlimited number of common shares, an unlimited number of First Preferred Shares and an unlimited number of Second Preferred Shares. The First and Second Preferred Shares may be issued in one or more series with rights and conditions to be determined by the Company’s Board of Directors prior to issuance and subject to the Company’s articles.
Issued and Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2012 |
| December 31, 2011 | ||||||||
As at |
| Number of Common Shares | ) |
| Amount |
|
| Number of Common Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Beginning of Year |
| 754,499 |
|
| 3,780 |
|
| 752,675 |
|
| 3,716 |
|
Common Shares Issued under Stock Option Plans |
| 1,177 |
|
| 44 |
|
| 1,824 |
|
| 64 |
|
Outstanding, End of Period |
| 755,676 |
|
| 3,824 |
|
| 754,499 |
|
| 3,780 |
|
There were no Preferred Shares outstanding as at June 30, 2012 (December 31, 2011 – nil).
As at June 30, 2012, there were 27 million (December 31, 2011 – 30 million) common shares available for future issuance under stock option plans.
16. STOCK-BASED COMPENSATION PLANS
A) Employee Stock Option Plan
Cenovus has an Employee Stock Option Plan that provides employees with the opportunity to exercise an option to purchase common shares of the Company. Option exercise prices approximate the market price for the common shares on the date the options were issued. Options granted are exercisable at 30 percent of the number granted after one year, an additional 30 percent of the number granted after two years, and are fully exercisable after three years. Options granted prior to February 17, 2010 expire after five years while options granted on or after February 17, 2010 expire after seven years.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Options issued by the Company under the Employee Stock Option Plan prior to February 24, 2011 have associated tandem stock appreciation rights. In lieu of exercising the options, the tandem stock appreciation rights give the option holder the right to receive a cash payment equal to the excess of the market price of Cenovus’s common shares at the time of exercise over the exercise price of the option.
Options issued by the Company on or after February 24, 2011 have associated net settlement rights. The net settlement rights, in lieu of exercising the option, give the option holder the right to receive the number of common shares that could be acquired with the excess value of the market price of Cenovus’s common shares at the time of exercise over the exercise price of the option.
The tandem stock appreciation rights and net settlement rights vest and expire under the same terms and conditions as the underlying options. For the purpose of this financial statement note, options with associated tandem stock appreciation rights are referred to as “TSARs” and options with associated net settlement rights are referred to as “NSRs”.
In addition, certain of the TSARs are performance based (“Performance TSARs”). The Performance TSARs vest and expire under the same terms and service conditions as the underlying option, and have an additional vesting requirement whereby vesting is subject to achievement of prescribed performance relative to pre-determined key measures. Performance TSARs that do not vest when eligible are forfeited.
In accordance with the Arrangement described in Note 1, each Cenovus and Encana employee exchanged their original Encana TSAR for one Cenovus Replacement TSAR and one Encana Replacement TSAR. The terms and conditions of the Cenovus and Encana Replacement TSARs are similar to the terms and conditions of the original Encana TSAR. The original exercise price of the Encana TSAR was apportioned to the Cenovus and Encana Replacement TSARs based on the one day volume weighted average trading price of Cenovus’s common share price relative to that of Encana’s common share price on the TSX on December 2, 2009. Cenovus TSARs and Cenovus Replacement TSARs are measured against the Cenovus common share price while Encana Replacement TSARs are measured against the Encana common share price. The Cenovus Replacement TSARs have similar vesting provisions as outlined above for the Employee Stock Option Plan. The original Encana Performance TSARs were also exchanged under the same terms as the original Encana TSARs.
As at June 30, 2012 |
| Issued |
| Term (Years) |
| Weighted |
| Weighted |
| Closing |
| Units Outstanding (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encana Replacement TSARs held by Cenovus Employees |
| Prior to Arrangement |
| 5 |
| 1.15 |
| 32.68 |
| 21.20 |
| 8,005 |
|
Cenovus Replacement TSARs held by Encana Employees |
| Prior to Arrangement |
| 5 |
| 1.19 |
| 29.34 |
| 32.37 |
| 5,940 |
|
TSARs |
| Prior to February 17, 2010 |
| 5 |
| 1.20 |
| 29.38 |
| 32.37 |
| 6,759 |
|
TSARs |
| On or After February 17, 2010 |
| 7 |
| 4.70 |
| 26.72 |
| 32.37 |
| 5,196 |
|
NSRs |
| On or After February 24, 2011 |
| 7 |
| 6.29 |
| 37.82 |
| 32.37 |
| 14,412 |
|
Unless otherwise indicated, all references to TSARs collectively refer to both the Cenovus issued TSARs and Cenovus Replacement TSARs.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
NSRs
The weighted average unit fair value of NSRs granted during the six months ended June 30, 2012 was $7.76 before considering forfeitures. The fair value of each NSR was estimated on their grant date using the Black-Scholes-Merton valuation model with weighted average assumptions as follows:
|
| 2012 |
|
|
|
|
|
Risk Free Interest Rate |
| 1.38 | % |
Expected Dividend Yield |
| 2.29 | % |
Expected Volatility 1 |
| 28.65 | % |
Expected Life (Years) |
| 4.55 |
|
1. Expected volatility has been based on historical share volatility of the Company and comparable industry peers.
The following tables summarize the information related to the NSRs as at June 30, 2012:
As at June 30, 2012 |
| NSRs |
|
| Weighted |
|
|
|
|
|
|
|
|
Outstanding, Beginning of Year |
| 5,809 |
|
| 36.95 |
|
Granted |
| 8,691 |
|
| 38.39 |
|
Exercised for common shares |
| (3 | ) |
| 35.83 |
|
Forfeited |
| (85 | ) |
| 37.16 |
|
Outstanding, End of Period |
| 14,412 |
|
| 37.82 |
|
Exercisable, End of Period |
| 1,522 |
|
| 37.37 |
|
The weighted average market price of Cenovus’s common shares at the date of exercise during the six months ended June 30, 2012 was $36.95.
|
| Outstanding NSRs |
| ||||||
As at June 30, 2012 |
| NSRs |
|
| Weighted |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
30.00 to 39.99 |
| 14,412 |
|
| 6.29 |
|
| 37.82 |
|
|
| 14,412 |
|
| 6.29 |
|
| 37.82 |
|
|
| Exercisable NSRs (thousands of units) | ||||
As at June 30, 2012 Range of Exercise Price ($) |
| NSRs |
|
| Weighted Average Exercise Price ($) |
|
|
|
|
|
|
|
|
30.00 to 39.99 |
| 1,522 |
|
| 37.37 |
|
|
| 1,522 |
|
| 37.37 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
TSARs Held by Cenovus Employees
The Company has recorded a liability of $63 million as at June 30, 2012 (December 31, 2011 – $90 million) in the Consolidated Balance Sheets based on the fair value of each TSAR held by Cenovus employees. Fair value was estimated at the period end date using the Black-Scholes-Merton valuation model with weighted average assumptions as follows:
|
| 2012 |
|
|
|
|
|
Risk Free Interest Rate |
| 1.11 | % |
Expected Dividend Yield |
| 2.44 | % |
Expected Volatility 1 |
| 28.62 | % |
Cenovus’s Common Share Price |
| $32.37 |
|
1. Expected volatility has been based on historical share volatility of the Company and comparable industry peers.
The intrinsic value of vested TSARs held by Cenovus employees as at June 30, 2012 was $39 million (December 31, 2011 – $43 million).
The following tables summarize the information related to the TSARs held by Cenovus employees as at June 30, 2012:
As at June 30, 2012 |
| TSARs |
|
| Performance |
|
| Total |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Beginning of Year |
| 9,391 |
|
| 5,530 |
|
| 14,921 |
|
| 28.12 |
|
Granted |
| - |
|
| - |
|
| - |
|
| - |
|
Exercised for cash payment |
| (714 | ) |
| (818 | ) |
| (1,532 | ) |
| 28.00 |
|
Exercised as options for common shares |
| (583 | ) |
| (574 | ) |
| (1,157 | ) |
| 27.58 |
|
Forfeited |
| (74 | ) |
| (203 | ) |
| (277 | ) |
| 26.71 |
|
Outstanding, End of Period |
| 8,020 |
|
| 3,935 |
|
| 11,955 |
|
| 28.22 |
|
Exercisable, End of Period |
| 5,560 |
|
| 3,935 |
|
| 9,495 |
|
| 28.57 |
|
The weighted average market price of Cenovus’s common shares at the date of exercise during the six months ended June 30, 2012 was $37.24.
|
| Outstanding TSARs |
| |||||||||||
As at June 30, 2012 |
| TSARs |
|
| Performance |
| Total |
|
| Weighted |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
| 6,508 |
|
| 2,262 |
| 8,770 |
|
| 3.37 |
|
| 26.39 |
|
30.00 to 39.99 |
| 1,449 |
|
| 1,673 |
| 3,122 |
|
| 0.94 |
|
| 33.07 |
|
40.00 to 49.99 |
| 63 |
|
| - |
| 63 |
|
| 0.95 |
|
| 43.29 |
|
|
| 8,020 |
|
| 3,935 |
| 11,955 |
|
| 2.72 |
|
| 28.22 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
|
| Exercisable TSARs | ||||||
As at June 30, 2012 |
| TSARs |
| Performance |
| Total |
| Weighted Average Exercise Price ($) |
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
| 4,186 |
| 2,262 |
| 6,448 |
| 26.33 |
30.00 to 39.99 |
| 1,311 |
| 1,673 |
| 2,984 |
| 33.08 |
40.00 to 49.99 |
| 63 |
| - |
| 63 |
| 43.29 |
|
| 5,560 |
| 3,935 |
| 9,495 |
| 28.57 |
The market price of Cenovus common shares as at June 30, 2012 was $32.37.
Encana Replacement TSARs Held by Cenovus Employees
Cenovus is required to reimburse Encana in respect of cash payments made by Encana to Cenovus employees when a Cenovus employee exercises an Encana Replacement TSAR for cash. No further Encana Replacement TSARs will be granted to Cenovus employees.
The Company has recorded a liability of $2 million as at June 30, 2012 (December 31, 2011 – $1 million) in the Consolidated Balance Sheets based on the fair value of each Encana Replacement TSAR held by Cenovus employees. Fair value was estimated at the period end date using the Black-Scholes-Merton valuation model with weighted average assumptions as follows:
|
| 2012 |
|
|
|
|
|
Risk Free Interest Rate |
| 1.04 | % |
Expected Dividend Yield |
| 3.82 | % |
Expected Volatility 1 |
| 30.75 | % |
Encana’s Common Share Price |
| $21.20 |
|
1. Expected volatility has been based on the historical volatility of Encana’s publicly traded shares.
The intrinsic value of vested Encana Replacement TSARs held by Cenovus employees as at June 30, 2012 was $nil (December 31, 2011 – $nil).
The following tables summarize the information related to the Encana Replacement TSARs held by Cenovus employees as at June 30, 2012:
As at June 30, 2012 |
| TSARs |
|
| Performance |
|
| Total |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Beginning of Year |
| 4,281 |
|
| 6,130 |
|
| 10,411 |
|
| 31.97 |
|
Exercised for cash payment |
| - |
|
| - |
|
| - |
|
| - |
|
Exercised as options for Encana common shares |
| - |
|
| - |
|
| - |
|
| - |
|
Forfeited |
| (50 | ) |
| (239 | ) |
| (289 | ) |
| 30.15 |
|
Expired |
| (881 | ) |
| (1,236 | ) |
| (2,117 | ) |
| 29.55 |
|
Outstanding, End of Period |
| 3,350 |
|
| 4,655 |
|
| 8,005 |
|
| 32.68 |
|
Exercisable, End of Period |
| 3,330 |
|
| 4,655 |
|
| 7,985 |
|
| 32.68 |
|
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
|
| Outstanding TSARs | |||||||||||||
As at June 30, 2012 Range of Exercise Price ($) |
| TSARs |
|
| Performance TSARs |
|
| Total |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Weighted Average Exercise Price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
| 1,592 |
|
| 2,559 |
|
| 4,151 |
|
| 1.62 |
|
| 29.02 |
|
30.00 to 39.99 |
| 1,625 |
|
| 2,096 |
|
| 3,721 |
|
| 0.64 |
|
| 36.32 |
|
40.00 to 49.99 |
| 131 |
|
| - |
|
| 131 |
|
| 0.98 |
|
| 44.84 |
|
50.00 to 59.99 |
| 2 |
|
| - |
|
| 2 |
|
| 0.89 |
|
| 50.39 |
|
|
| 3,350 |
|
| 4,655 |
|
| 8,005 |
|
| 1.15 |
|
| 32.68 |
|
|
|
|
|
| Exercisable TSARs | ||||||||||
As at June 30, 2012 |
|
|
|
| TSARs |
|
| Performance |
|
| Total |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
|
|
|
| 1,581 |
|
| 2,559 |
|
| 4,140 |
|
| 29.02 |
|
30.00 to 39.99 |
|
|
|
| 1,616 |
|
| 2,096 |
|
| 3,712 |
|
| 36.33 |
|
40.00 to 49.99 |
|
|
|
| 131 |
|
| - |
|
| 131 |
|
| 44.84 |
|
50.00 to 59.99 |
|
|
|
| 2 |
|
| - |
|
| 2 |
|
| 50.39 |
|
|
|
|
|
| 3,330 |
|
| 4,655 |
|
| 7,985 |
|
| 32.68 |
|
The market price of Encana common shares as at June 30, 2012 was $21.20.
Cenovus Replacement TSARs Held by Encana Employees
Encana is required to reimburse Cenovus in respect of cash payments made by Cenovus to Encana’s employees when these employees exercise a Cenovus Replacement TSAR for cash. No compensation expense is recognized and no further Cenovus Replacement TSARs will be granted to Encana employees.
The Company has recorded a liability of $41 million as at June 30, 2012 (December 31, 2011 – $83 million) in the Consolidated Balance Sheets based on the fair value of each Cenovus Replacement TSAR held by Encana employees, with an offsetting account receivable from Encana. Fair value was estimated at the period end date using the Black-Scholes-Merton valuation model with weighted average assumptions as follows:
|
| 2012 |
|
|
|
|
|
Risk Free Interest Rate |
| 1.04 | % |
Expected Dividend Yield |
| 2.44 | % |
Expected Volatility 1 |
| 28.62 | % |
Cenovus’s Common Share Price |
| $32.37 |
|
1. Expected volatility has been based on historical share volatility of the Company and comparable industry peers.
The intrinsic value of vested Cenovus Replacement TSARs held by Encana employees as at June 30, 2012 was $20 million (December 31, 2011 – $32 million).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
The following tables summarize the information related to the Cenovus Replacement TSARs held by Encana employees as at June 30, 2012:
As at June 30, 2012 |
| TSARs |
|
| Performance |
|
| Total |
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, Beginning of Year |
| 3,935 |
|
| 5,751 |
|
| 9,686 |
|
| 28.96 |
|
Exercised for cash payment |
| (1,431 | ) |
| (1,880 | ) |
| (3,311 | ) |
| 28.56 |
|
Exercised as options for common shares |
| (8 | ) |
| (12 | ) |
| (20 | ) |
| 26.63 |
|
Forfeited |
| (84 | ) |
| (331 | ) |
| (415 | ) |
| 26.86 |
|
Outstanding, End of Period |
| 2,412 |
|
| 3,528 |
|
| 5,940 |
|
| 29.34 |
|
Exercisable, End of Period |
| 2,400 |
|
| 3,528 |
|
| 5,928 |
|
| 29.34 |
|
The weighted average market price of Cenovus’s common shares at the date of exercise during the six months ended June 30, 2012 was $37.18.
|
| Outstanding TSARs (thousands of units) | |||||||||||||
As at June 30, 2012 Range of Exercise Price ($) |
| TSARs |
|
| Performance TSARs |
|
| Total |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Weighted Average Exercise Price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
| 1,273 |
|
| 2,069 |
|
| 3,342 |
|
| 1.61 |
|
| 26.29 |
|
30.00 to 39.99 |
| 1,075 |
|
| 1,459 |
|
| 2,534 |
|
| 0.63 |
|
| 33.02 |
|
40.00 to 49.99 |
| 64 |
|
| - |
|
| 64 |
|
| 0.94 |
|
| 42.83 |
|
|
| 2,412 |
|
| 3,528 |
|
| 5,940 |
|
| 1.19 |
|
| 29.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable TSARs | ||||||||||
As at June 30, 2012 Range of Exercise Price ($) |
|
|
|
| TSARs |
|
| Performance TSARs |
|
| Total |
|
| Weighted Average Exercise Price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.00 to 29.99 |
|
|
|
| 1,261 |
|
| 2,069 |
|
| 3,330 |
|
| 26.29 |
|
30.00 to 39.99 |
|
|
|
| 1,075 |
|
| 1,459 |
|
| 2,534 |
|
| 33.02 |
|
40.00 to 49.99 |
|
|
|
| 64 |
|
| - |
|
| 64 |
|
| 42.83 |
|
|
|
|
|
| 2,400 |
|
| 3,528 |
|
| 5,928 |
|
| 29.34 |
|
The market price of Cenovus common shares as at June 30, 2012 was $32.37.
B) Performance Share Units
Cenovus has granted Performance Share Units (“PSUs”) to certain employees under its Performance Share Unit Plan for Employees. PSUs are whole share units and entitle employees to receive, upon vesting, either a common share of Cenovus or a cash payment equal to the value of a Cenovus common share. For a portion of PSUs, the number of PSUs eligible for payment is determined over three years based on the units granted multiplied by 30 percent after year one, 30 percent after year two and 40 percent after year three. All PSUs are eligible to vest based on the Company achieving key pre-determined performance measures. PSUs vest after three years.
The Company has recorded a liability of $88 million as at June 30, 2012 (December 31, 2011 – $55 million) in the Consolidated Balance Sheets for PSUs based on the market value of the Cenovus common shares as at June 30, 2012. The intrinsic value of vested PSUs was $nil as at June 30, 2012 and December 31, 2011 as PSUs are paid out upon vesting.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
The following table summarizes the information related to the PSUs held by Cenovus employees as at June 30, 2012:
As at June 30, 2012 |
|
|
|
(thousands of units) |
| PSUs |
|
|
|
|
|
Outstanding, Beginning of Year |
| 2,623 |
|
Granted |
| 2,694 |
|
Cancelled |
| (105 | ) |
Units in Lieu of Dividends |
| 53 |
|
Outstanding, End of Period |
| 5,265 |
|
C) Deferred Share Units
Under two Deferred Share Unit Plans, Cenovus directors, officers and employees may receive Deferred Share Units (“DSUs”), which are equivalent in value to a common share of the Company. Employees have the option to convert either zero, 25 or 50 percent of their annual bonus award into DSUs. DSUs vest immediately, are redeemed in accordance with the terms of the agreement and expire on December 15 of the calendar year following the year of cessation of directorship or employment.
The Company has recorded a liability of $37 million as at June 30, 2012 (December 31, 2011 – $35 million) in the Consolidated Balance Sheets for DSUs based on the market value of the Cenovus common shares as at June 30, 2012. The intrinsic value of vested DSUs equals the carrying value as DSUs vest at the time of grant.
The following table summarizes the information related to the DSUs held by Cenovus directors, officers and employees as at June 30, 2012:
As at June 30, 2012 |
|
|
|
(thousands of units) |
| DSUs |
|
|
|
|
|
Outstanding, Beginning of Year |
| 1,042 |
|
Granted to Directors |
| 62 |
|
Granted from Annual Bonus Awards |
| 22 |
|
Units in Lieu of Dividends |
| 15 |
|
Exercised |
| - |
|
Outstanding, End of Period |
| 1,141 |
|
D) Total Stock-Based Compensation Expense (Recovery)
The following table summarizes the stock-based compensation expense (recovery) recorded for all plans within operating and general and administrative expenses on the Consolidated Statements of Earnings and Comprehensive Income:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||
For the period ended June 30, |
| 2012 |
|
| 2011 |
|
| 2012 |
|
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NSRs |
| 5 |
|
| 4 |
|
| 13 |
|
| 8 |
|
TSARs held by Cenovus employees |
| (20 | ) |
| (10 | ) |
| (4 | ) |
| 36 |
|
Encana Replacement TSARs held by Cenovus employees |
| 1 |
|
| (15 | ) |
| 1 |
|
| 4 |
|
PSUs |
| 6 |
|
| 6 |
|
| 21 |
|
| 16 |
|
DSUs |
| (4 | ) |
| (2 | ) |
| 2 |
|
| 6 |
|
Total stock-based compensation expense (recovery) |
| (12 | ) |
| (17 | ) |
| 33 |
|
| 70 |
|
17. INTEREST IN JOINT OPERATIONS
Cenovus has a 50 percent interest in FCCL Partnership, a jointly controlled entity which is involved in the development and production of crude oil. In addition, through its interest in the general partner and a limited partner, Cenovus has a 50 percent interest in WRB Refining LP, a jointly controlled entity, which owns two refineries in the U.S. and focuses on the refining of crude oil into petroleum and chemical products.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
These entities have been accounted for using the proportionate consolidation method with the results of operations included in the Oil Sands and Refining and Marketing segments, respectively. Summarized financial statement information for these jointly controlled entities is as follows:
|
| FCCL Partnership 1 |
| WRB Refining LP 1 | ||||||||
Consolidated Statements of Earnings For the three months ended June 30, |
| 2012 |
|
| 2011 |
|
| 2012 |
|
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| 728 |
|
| 592 |
|
| 2,470 |
|
| 2,277 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| - |
|
| - |
|
| 2,022 |
|
| 1,843 |
|
Operating, transportation and blending and realized gain/loss on risk management |
| 455 |
|
| 320 |
|
| 101 |
|
| 112 |
|
Operating Cash Flow |
| 273 |
|
| 272 |
|
| 347 |
|
| 322 |
|
Depreciation, depletion and amortization |
| 68 |
|
| 41 |
|
| 32 |
|
| 18 |
|
Other expenses (income) |
| (49 | ) |
| (5 | ) |
| (3 | ) |
| 1 |
|
Net Earnings (Loss) |
| 254 |
|
| 236 |
|
| 318 |
|
| 303 |
|
1. FCCL Partnership and WRB Refining LP are not separate tax paying entities. Income taxes related to the Partnerships’ income are the responsibility of their respective Partners.
|
| FCCL Partnership 1 |
| WRB Refining LP 1 | ||||||||
Consolidated Statements of Earnings For the six months ended June 30, |
| 2012 |
|
| 2011 |
|
| 2012 |
|
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| 1,537 |
|
| 1,147 |
|
| 4,912 |
|
| 4,072 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased product |
| - |
|
| - |
|
| 4,068 |
|
| 3,333 |
|
Operating, transportation and blending and realized gain/loss on risk management |
| 967 |
|
| 687 |
|
| 229 |
|
| 237 |
|
Operating Cash Flow |
| 570 |
|
| 460 |
|
| 615 |
|
| 502 |
|
Depreciation, depletion and amortization |
| 138 |
|
| 90 |
|
| 67 |
|
| 34 |
|
Other expenses (income) |
| (24 | ) |
| 31 |
|
| (4 | ) |
| (1 | ) |
Net Earnings (Loss) |
| 456 |
|
| 339 |
|
| 552 |
|
| 469 |
|
1. FCCL Partnership and WRB Refining LP are not separate tax paying entities. Income taxes related to the Partnerships’ income are the responsibility of their respective Partners.
|
| FCCL Partnership |
| WRB Refining LP | ||||||||
Consolidated Balance Sheets As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
| June 30, 2012 |
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| 224 |
|
| 145 |
|
| 108 |
|
| 166 |
|
Other Current Assets |
| 695 |
|
| 792 |
|
| 1,257 |
|
| 1,236 |
|
Long-term Assets |
| 7,188 |
|
| 6,864 |
|
| 3,148 |
|
| 3,188 |
|
Current Liabilities |
| 334 |
|
| 317 |
|
| 543 |
|
| 759 |
|
Long-term Liabilities |
| 94 |
|
| 83 |
|
| 73 |
|
| 73 |
|
18. CAPITAL STRUCTURE
Cenovus’s capital structure objectives and targets have remained unchanged from previous periods. Cenovus’s capital structure consists of Shareholders’ Equity plus Debt. Debt includes the Company’s short-term borrowings plus long-term debt, including the current portion. Cenovus’s objectives when managing its capital structure are to maintain financial flexibility, preserve access to capital markets, ensure its ability to finance internally generated growth and to fund potential acquisitions while maintaining the ability to meet the Company’s financial obligations as they come due.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Cenovus monitors its capital structure financing requirements using, among other things, non-GAAP financial metrics consisting of Debt to Capitalization and Debt to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). These metrics are used to steward Cenovus’s overall debt position as measures of Cenovus’s overall financial strength. Debt is defined as short-term borrowings and the current and long-term portions of long-term debt excluding any amounts with respect to the Partnership Contribution Payable or Receivable.
Cenovus continues to target a Debt to Capitalization ratio of between 30 and 40 percent over the long-term.
As at |
| June 30, 2012 |
| December 31, 2011 |
|
|
|
|
|
Short-Term Borrowings |
| 209 |
| - |
Long-Term Debt |
| 3,536 |
| 3,527 |
Debt |
| 3,745 |
| 3,527 |
Shareholders’ Equity |
| 9,971 |
| 9,406 |
Total Capitalization |
| 13,716 |
| 12,933 |
Debt to Capitalization |
| 27% |
| 27% |
Cenovus continues to target a Debt to Adjusted EBITDA of between 1.0 and 2.0 times over the long-term.
As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
Debt |
| 3,745 |
|
| 3,527 |
|
Net Earnings |
| 1,598 |
|
| 1,478 |
|
Add (deduct): |
|
|
|
|
|
|
Finance costs |
| 448 |
|
| 447 |
|
Interest income |
| (117 | ) |
| (124 | ) |
Income tax expense |
| 788 |
|
| 729 |
|
Depreciation, depletion and amortization |
| 1,480 |
|
| 1,295 |
|
Exploration expense |
| 68 |
|
| - |
|
Unrealized (gain) loss on risk management |
| (372 | ) |
| (180 | ) |
Foreign exchange (gain) loss, net |
| 64 |
|
| 26 |
|
(Gain) loss on divestiture of assets |
| (105 | ) |
| (107 | ) |
Other (income) loss, net |
| - |
|
| 4 |
|
Adjusted EBITDA * |
| 3,852 |
|
| 3,568 |
|
Debt to Adjusted EBITDA |
| 1.0x |
|
| 1.0x |
|
* Calculated on a trailing twelve-month basis.
It is Cenovus’s intention to maintain investment grade credit ratings to help ensure it has continuous access to capital and the financial flexibility to fund its capital programs, meet its financial obligations and finance potential acquisitions. Cenovus will maintain a high level of capital discipline and manage its capital structure to ensure sufficient liquidity through all stages of the economic cycle. To manage the capital structure, Cenovus may adjust capital and operating spending, adjust dividends paid to shareholders, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, draw down on its credit facilities or repay existing debt.
As at June 30, 2012, Cenovus is in compliance with all of the terms of its debt agreements.
19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Cenovus’s consolidated financial assets and financial liabilities consist of cash and cash equivalents, accounts receivable and accrued revenues, accounts payable and accrued liabilities, Partnership Contribution Receivable and Payable, partner loans, risk management assets and liabilities, long-term receivables, short-term borrowings, long-term debt and obligations for stock-based compensation carried at fair value. Risk management assets and liabilities arise from the use of derivative financial instruments. Fair values of financial assets and liabilities, summarized information related to risk management positions, and discussion of risks associated with financial assets and liabilities are presented as follows.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
A) Fair Value of Financial Assets and Liabilities
The fair values of cash and cash equivalents, accounts receivable and accrued revenues, accounts payable and accrued liabilities, and short-term borrowings approximate their carrying amount due to the short-term maturity of those instruments.
The fair values of the Partnership Contribution Receivable and Partnership Contribution Payable, partner loans and long-term receivables approximate their carrying amount due to the specific non-tradeable nature of these instruments.
Risk management assets and liabilities are recorded at their estimated fair value based on mark-to-market accounting, using quoted market prices or, in their absence, third-party market indications and forecasts.
Long-term debt is carried at amortized cost. The estimated fair values of long-term borrowings have been determined based on prices sourced from market data. As at June 30, 2012, the carrying value of Cenovus’s long-term debt accounted for using amortized cost was $3,536 million and the fair value was $4,208 million (December 31, 2011 carrying value – $3,527, fair value – $4,316).
B) Risk Management Assets and Liabilities
Net Risk Management Position
As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
Risk Management Assets |
|
|
|
|
|
|
Current asset |
| 380 |
|
| 232 |
|
Long-term asset |
| 93 |
|
| 52 |
|
|
| 473 |
|
| 284 |
|
Risk Management Liabilities |
|
|
|
|
|
|
Current liability |
| 23 |
|
| 54 |
|
Long-term liability |
| 1 |
|
| 14 |
|
|
| 24 |
|
| 68 |
|
Net Risk Management Asset (Liability) |
| 449 |
|
| 216 |
|
Summary of Unrealized Risk Management Positions
|
| June 30, 2012 |
| December 31, 2011 | ||||||||||||||
|
| Risk Management |
| Risk Management | ||||||||||||||
As at |
| Asset |
|
| Liability |
|
| Net |
|
| Asset |
|
| Liability |
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
| 279 |
|
| 23 |
|
| 256 |
|
| 22 |
|
| 65 |
|
| (43 | ) |
Natural Gas |
| 185 |
|
| 1 |
|
| 184 |
|
| 247 |
|
| 3 |
|
| 244 |
|
Power |
| 9 |
|
| - |
|
| 9 |
|
| 15 |
|
| - |
|
| 15 |
|
Total Fair Value |
| 473 |
|
| 24 |
|
| 449 |
|
| 284 |
|
| 68 |
|
| 216 |
|
Net Fair Value Methodologies Used to Calculate Unrealized Risk Management Positions
As at |
| June 30, 2012 |
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
Prices actively quoted |
| 388 |
|
| 226 |
|
Prices sourced from observable data or market corroboration |
| 61 |
|
| (10 | ) |
Total Fair Value |
| 449 |
|
| 216 |
|
Prices actively quoted refers to the fair value of contracts valued using quoted prices in an active market. Prices sourced from observable data or market corroboration refers to the fair value of contracts valued in part using active quotes and in part using observable, market-corroborated data.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Net Fair Value of Commodity Price Positions as at June 30, 2012
As at June 30, 2012 |
| Notional Volumes |
| Term |
| Average Price |
| Fair Value |
|
|
|
|
|
|
|
|
|
Crude Oil Contracts |
|
|
|
|
|
|
|
|
Fixed Price Contracts |
|
|
|
|
|
|
|
|
WTI NYMEX Fixed Price |
| 24,800 bbls/d |
| 2012 |
| US$98.72/bbl |
| 58 |
WTI NYMEX Fixed Price |
| 24,500 bbls/d |
| 2012 |
| $99.47/bbl |
| 52 |
WTI NYMEX Fixed Price |
| 10,000 bbls/d |
| 2013 |
| US$102.62/bbl |
| 53 |
WTI NYMEX Fixed Price |
| 10,000 bbls/d |
| 2013 |
| $103.26/bbl |
| 45 |
Other Fixed Price Contracts 1 |
|
|
| 2012-2014 |
|
|
| 53 |
|
|
|
|
|
|
|
|
|
Other Financial Positions 2 |
|
|
|
|
|
|
| (5) |
Crude Oil Fair Value Position |
|
|
|
|
|
|
| 256 |
|
|
|
|
|
|
|
|
|
Natural Gas Contracts |
|
|
|
|
|
|
|
|
Fixed Price Contracts |
|
|
|
|
|
|
|
|
NYMEX Fixed Price |
| 130 MMcf/d |
| 2012 |
| US$5.96/Mcf |
| 73 |
AECO Fixed Price 1 |
| 127 MMcf/d |
| 2012 |
| $4.50/Mcf |
| 46 |
NYMEX Fixed Price |
| 166 MMcf/d |
| 2013 |
| US$4.64/Mcf |
| 66 |
Other Fixed Price Contracts 1 |
|
|
| 2012-2013 |
|
|
| (1) |
Natural Gas Fair Value Position |
|
|
|
|
|
|
| 184 |
|
|
|
|
|
|
|
|
|
Power Purchase Contracts |
|
|
|
|
|
|
|
|
Power Fair Value Position |
|
|
|
|
|
|
| 9 |
1. Cenovus has entered into fixed price swaps to protect against widening price differentials between production areas in Canada, various sales points and quality differentials.
2. Other financial positions are part of ongoing operations to market the Company’s production.
Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions
|
| Three Months Ended |
| Six Months Ended | ||||||||
For the period ended June 30, |
| 2012 |
|
| 2011 |
|
| 2012 |
|
| 2011 |
|
REALIZED GAIN (LOSS) 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
| 26 |
|
| (70 | ) |
| - |
|
| (104 | ) |
Natural Gas |
| 75 |
|
| 45 |
|
| 135 |
|
| 97 |
|
Refining |
| 17 |
|
| (8 | ) |
| 12 |
|
| (13 | ) |
Power |
| (2 | ) |
| (4 | ) |
| (2 | ) |
| (3 | ) |
|
| 116 |
|
| (37 | ) |
| 145 |
|
| (23 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED GAIN (LOSS) 2 |
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
| 261 |
|
| 325 |
|
| 291 |
|
| 65 |
|
Natural Gas |
| (97 | ) |
| (16 | ) |
| (61 | ) |
| (49 | ) |
Refining |
| 5 |
|
| (2 | ) |
| 8 |
|
| 1 |
|
Power |
| - |
|
| 2 |
|
| (5 | ) |
| 24 |
|
|
| 169 |
|
| 309 |
|
| 233 |
|
| 41 |
|
Gain (Loss) on Risk Management |
| 285 |
|
| 272 |
|
| 378 |
|
| 18 |
|
1. Realized gains and losses on risk management are recorded in the operating segment to which the derivative instrument relates.
2. Unrealized gains and losses on risk management are recorded in the Corporate and Eliminations segment.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Reconciliation of Unrealized Risk Management Positions from January 1 to June 30,
|
|
|
|
|
|
|
|
|
|
|
| 2012 |
| 2011 |
| ||||
|
| Fair Value |
|
| Total Unrealized Gain (Loss) |
|
| Total Unrealized Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Contracts, Beginning of Year |
| 216 |
|
|
|
|
|
|
|
Change in fair value of contracts in place at beginning of year |
|
|
|
|
|
|
|
|
|
and contracts entered into during the period |
| 378 |
|
| 378 |
|
| 18 |
|
Unrealized foreign exchange gain (loss) on U.S. dollar contracts |
| - |
|
| - |
|
| - |
|
Fair value of contracts realized during the period |
| (145 | ) |
| (145 | ) |
| 23 |
|
Fair Value of Contracts, End of Period |
| 449 |
|
| 233 |
|
| 41 |
|
Commodity Price Sensitivities – Risk Management Positions
The following table summarizes the sensitivity of the fair value of Cenovus’s risk management positions to fluctuations in commodity prices, with all other variables held constant. Management believes the price fluctuations identified in the table below are a reasonable measure of volatility. Fluctuations in commodity prices could have resulted in unrealized gains (losses) impacting earnings before income tax on open risk management positions as at June 30, 2012 as follows:
Commodity |
| Sensitivity Range |
| Increase |
|
| Decrease |
|
|
|
|
|
|
|
|
|
|
Crude oil commodity price |
| ± US$10 per bbl applied to WTI hedges |
| (188 | ) |
| 188 |
|
Crude oil differential price |
| ± US$5 per bbl applied to differential hedges tied to production |
| 111 |
|
| (111 | ) |
Natural gas commodity price |
| ± $1 per mcf applied to NYMEX and AECO natural gas hedges |
| (111 | ) |
| 111 |
|
Natural gas basis price |
| ± $0.10 per mcf natural gas basis hedges |
| 3 |
|
| (3 | ) |
Power commodity price |
| ± $25 per MWHr applied to power hedge |
| 19 |
|
| (19 | ) |
C) Risks Associated with Financial Assets and Liabilities
Commodity Price Risk
Commodity price risk arises from the effect that fluctuations of future commodity prices may have on the fair value or future cash flows of financial assets and liabilities. To partially mitigate exposure to commodity price risk, the Company has entered into various financial derivative instruments. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors. The Company’s policy is not to use derivative instruments for speculative purposes.
Crude Oil – The Company has used fixed price swaps to partially mitigate its exposure to the commodity price risk on its crude oil sales and condensate supply used for blending. To help protect against widening crude oil price differentials, Cenovus has entered into a limited number of swaps and futures to manage the price differentials.
Natural Gas – To partially mitigate the natural gas commodity price risk, the Company has entered into swaps, which fix the NYMEX and AECO prices. To help protect against widening natural gas price differentials in various production areas, Cenovus has entered into a limited number of swaps to manage the price differentials between these production areas and various sales points.
Power – The Company has in place a Canadian dollar denominated derivative contract, which commenced January 1, 2007 for a period of 11 years, to manage a portion of its electricity consumption costs.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Credit Risk
Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. This credit risk exposure is mitigated through the use of Board-approved credit policies governing the Company’s credit portfolio and with credit practices that limit transactions according to counterparties’ credit quality. Agreements are entered into with major financial institutions with investment grade credit ratings and with counterparties, most of which have investment grade credit ratings. A substantial portion of Cenovus’s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. As at June 30, 2012, 88 percent (December 31, 2011 – over 92 percent) of Cenovus’s accounts receivable and financial derivative credit exposures are with investment grade counterparties.
As at June 30, 2012, Cenovus had two counterparties whose net settlement position individually account for more than 10 percent (December 31, 2011 – two counterparties) of the fair value of the outstanding in-the-money net financial and physical contracts by counterparty. The maximum credit risk exposure associated with accounts receivable and accrued revenues, risk management assets, Partnership Contribution Receivable, partner loans receivable, and long-term receivables is the total carrying value. The current concentration of this credit risk resides with A rated or higher counterparties. Cenovus’s exposure to its counterparties is acceptable and within Credit Policy tolerances.
Liquidity Risk
Liquidity risk is the risk that Cenovus will not be able to meet all of its financial obligations as they become due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a reasonable price. Cenovus manages its liquidity risk through the active management of cash and debt and by maintaining appropriate access to credit. As disclosed in Note 18, over the long term, Cenovus targets a Debt to Capitalization ratio between 30 and 40 percent and a Debt to Adjusted EBITDA of between 1.0 to 2.0 times to manage the Company’s overall debt position. It is Cenovus’s intention to maintain investment grade credit ratings on its senior unsecured debt.
Cenovus manages its liquidity risk by ensuring that it has access to multiple sources of capital including: cash and cash equivalents, cash from operating activities, undrawn credit facilities, commercial paper and availability under its shelf prospectuses. As at June 30, 2012, Cenovus had $2,791 million available on its committed credit facility. In addition, Cenovus had in place a Canadian debt shelf prospectus for $1,500 million and a U.S. debt shelf prospectus for US$2,000 million, the availability of which are dependent on market conditions. No notes have been issued under either prospectus.
Undiscounted cash outflows relating to financial liabilities are outlined in the table below:
|
| Less than 1 Year |
| 1-3 Years |
| 4-5 Years |
| Thereafter |
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
| 2,287 |
| - |
| - |
| - |
| 2,287 |
|
Risk Management Liabilities |
| 23 |
| 1 |
| - |
| - |
| 24 |
|
Short-Term Borrowings 1 |
| 209 |
| - |
| - |
| - |
| 209 |
|
Long-Term Debt 1 |
| 209 |
| 1,214 |
| 344 |
| 5,106 |
| 6,873 |
|
Partnership Contribution Payable 1 |
| 498 |
| 996 |
| 872 |
| - |
| 2,366 |
|
Other 1 |
| 4 |
| 7 |
| 3 |
| 5 |
| 19 |
|
1. Principal and interest, including current portion.
Foreign Exchange Risk
Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value of future cash flows of Cenovus’s financial assets or liabilities. As Cenovus operates in North America, fluctuations in the exchange rate between the U.S./Canadian dollars can have a significant effect on reported results.
As disclosed in Note 5, Cenovus’s foreign exchange (gain) loss primarily includes unrealized foreign exchange gains and losses on the translation of the U.S. dollar debt issued from Canada and the translation of the U.S. dollar Partnership Contribution Receivable issued from Canada. As at June 30, 2012, Cenovus had US$3,500 million in U.S. dollar debt issued from Canada (US$3,500 million as at December 31, 2011) and US$1,976 million related to the U.S. dollar Partnership Contribution Receivable (US$2,157 million as at December 31, 2011). A $0.01 change in the U.S. to Canadian dollar exchange rate would have resulted in a $15 million change in foreign exchange (gain) loss as at June 30, 2012 (June 30, 2011 – $12 million).
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
All amounts in $ millions, unless otherwise indicated
For the period ended June 30, 2012
Interest Rate Risk
Interest rate risk arises from changes in market interest rates that may affect earnings, cash flows and valuations. Cenovus has the flexibility to partially mitigate its exposure to interest rate changes by maintaining a mix of both fixed and floating rate debt.
As at June 30, 2012, the increase or decrease in net earnings for a one percentage point change in interest rates on floating rate debt amounts to $2 million (June 30, 2011 – $1 million). This assumes the amount of fixed and floating debt remains unchanged from the respective balance sheet dates.
20. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Cenovus is involved in a limited number of legal claims associated with the normal course of operations. Cenovus believes it has made adequate provisions for such legal claims. There are no individually or collectively significant claims.
Cenovus Energy Inc. |
| For the period ended June 30, 2012 |